Edited version of private ruling

Authorisation Number: 1011518908063

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Ruling

Subject: Concessional and non- concessional contributions

Question 1

Are the employer superannuation contributions you received during the 2009-10 income year included as concessional contributions and counted towards the concessional contribution cap?

Answer: Yes.

Question 2

Is the personal superannuation contribution you made during the 2009-10 income year included as a non-concessional contribution and counted towards the non-concessional contribution cap?

Answer: Yes.

Question 3

Is your superannuation benefit transferred from a foreign superannuation fund to an Australian superannuation fund included as a non-concessional contribution and counted towards the non-concessional contributions cap?

Answer: Yes, to the extent that it is not included in the assessable income of the Australian superannuation fund.

This ruling applies for the following period:

Year ended 30 June 2010

The scheme commences on:

1 July 2009

Relevant facts and circumstances

You returned to Australia after living overseas for a number of years.

You transferred superannuation benefit from a foreign pension fund into a complying Australian superannuation fund after you returned.

You have been employed in a number of positions during the 2009-10 income year.

The positions attracted superannuation guarantee payments made to a superannuation fund.

You made a post-tax contribution, which is 10% of your salary from the second position, into your superannuation fund.

You are under age 50.

Relevant legislative provisions

Income Tax Assessment Act 1997 Section 292-15

Income Tax Assessment Act 1997 Subsection 292-20(2)

Income Tax Assessment Act 1997 Section 292-25

Income Tax Assessment Act 1997 Section 292-80

Income Tax Assessment Act 1997 subsection 292-85(2)

Income Tax Assessment Act 1997 Subsections 292-85(3)

Income Tax Assessment Act 1997 Subsections 292-85(4)

Income Tax Assessment Act 1997 Section 292-90

Income Tax Assessment Act 1997 Section 292-410

Income Tax Assessment Act 1997 Sections 305-60

Income Tax Assessment Act 1997 Sections 305-70

Income Tax Assessment Act 1997 Subsections 305-70(1)

Income Tax Assessment Act 1997 Section 305-75

Income Tax Assessment Act 1997 Subsection 305-75(2)

Income Tax Assessment Act 1997 Subsection 305-75(3)

Income Tax Assessment Act 1997 Paragraph 305-75(3)(a)

Income Tax Assessment Act 1997 Paragraph 305-75(3)(b)

Income Tax Assessment Act 1997 Paragraph 305-75(3)(c)

Income Tax Assessment Act 1997 Paragraph 305-75(3)(d)

Income Tax Assessment Act 1997 Section 305-80

Income Tax Assessment Act 1997 Subsection 305-80(1)

Income Tax Assessment Act 1997 Subsection 305-80(2)

Income Tax Assessment Act 1997 Subsection 305-80(3)

Superannuation (Excess Concessional Contributions Tax) Act 2007 Sections 4

Superannuation (Excess Concessional Contributions Tax) Act 2007 Sections 5

Superannuation (Excess Non- concessional Contributions Tax) Act 2007 Sections 4

Superannuation (Excess Non- concessional Contributions Tax) Act 2007 Sections 5

Reasons for decision

Summary

Concessional contributions include employer contributions, salary sacrifice contributions and personal contributions claimed as a tax deduction by a self-employed person. If they exceed the concessional contributions cap of $25,000 (for persons under age 50 in the 2009-10 income year) they are taxed at a rate of 31.5%.

Non-concessional contributions include post-tax personal contributions not claimed as a tax deduction, spouse contributions and transfers from foreign superannuation funds to the extent that they are not included in the Australian superannuation fund's assessable income. If they exceed the non-concessional contributions cap of $150,000 (for the 2009-10 income year) they are taxed at the rate of 46.5%.

A portion of the lump sum payment made by a foreign fund to an Australian superannuation fund is assessable as 'applicable fund earnings'. The applicable fund earnings represents the increase or growth in the foreign fund during the period you are a resident of Australia.

The applicable fund earnings is subject to tax at your marginal rates. However, you may be able to elect to have the applicable fund earnings treated as assessable income of the Australian superannuation fund. If you do, the amount of the applicable fund earnings will not be treated as concessional contribution nor will it be treated as non-concessional contribution.

Detailed reasoning

Lump sum payments transferred from a foreign superannuation fund

From 1 July 2007 the applicable fund earnings in relation to a lump sum payment from a foreign superannuation fund that is received more than six months after a person has become an Australian resident will be assessable under section 305-70 of the Income Tax Assessment Act 1997 (ITAA 1997). The remainder of the lump sum payment is not assessable income and is not exempt income.

The applicable fund earnings is the amount worked out under either subsection 305-75(2) or (3) of the ITAA 1997. Subsection 305-75(2) applies where the person was an Australian resident at all times during the period to which the lump sum relates. Subsection 305-75(3) applies where the person was not an Australian resident at all times during the period to which the lump sum relates.

In your case, the amount included as assessable income, is worked out under subsection 305-75(3) of the ITAA 1997 because you were not an Australian resident at all times during the period to which the lump sum relates.

Subsection 305-75(3) of the ITAA 1997 states:

If you become an Australian resident after the start of the period to which the lump sum relates (but before you received it) the amount of your applicable fund earnings is the amount (not less than zero) worked out as follows:

(a) work out the total of the following amounts:

(i) the amount in the fund that was vested in you just before the day (the start day) you first became an Australian resident during the period;

(ii) the part of the payment that is attributable to contributions to the fund made by or in respect of you during the remainder of the period;

(iii) the part of the payment (if any) that is attributable to amounts transferred into the fund from any other foreign superannuation fund during the remainder of the period;

(b) subtract that total amount from the amount in the fund that was vested in you when the lump sum was paid (before any deduction for foreign tax);

(c) multiply the resulting amount by the proportion of the total days during the period when you were an Australian resident;

(d) add the total of all previously exempt fund earnings (if any) covered by subsections (5) and (6).

This calculation effectively means that a person will be assessed only on the income earned in the fund while he or she was a resident of Australia. That is, the person will only be assessed on the accretion in the fund less any contributions made since he or she became a resident of Australia.

Further, any amounts representative of earnings during periods of non-residency and certain capital amounts previously transferred into the paying fund do not form part of the taxable amount when the overseas benefit is paid.

It should be noted that, if the entity making the payment is not a foreign superannuation fund, then subsection 305-70(1) of the ITAA 1997 will not have any application. For example, if the foreign fund contains provisions that allow for the early withdrawal of benefits for non-retirement purposes - such as for the purchase of a first home, meeting certain medical expenses or education expenses - the foreign fund would not be considered a superannuation fund for the purposes of the ITAA 1997.

Election under section 305-80 of the ITAA 1997

From 1 July 2007, a taxpayer who is eligible to transfer their overseas superannuation benefits directly to an Australian complying superannuation fund more than six months after becoming a resident, may be able to elect under subsection 305-80(1) of the ITAA 1997 to have part of the payment, otherwise assessable under section 305-70, treated as assessable income of the Australian superannuation fund.

To qualify, the person must, immediately after the relevant payment is made, no longer have an interest in the paying fund. Under subsection 305-80(3) of the ITAA 1997, the election must be in writing, specify the amount to be covered by the election and comply with any requirements specified in the Income Tax Regulations.

Any amount that is not covered by the election, or the part of the payment that is not otherwise assessable under section 305-70 of the ITAA 1997, is included as assessable income of the taxpayer and taxed at the person's marginal rate of tax.

Concessional contributions

From 1 July 2007, concessional contributions made to superannuation funds are subject to an annual cap. For the 2009-10 income year, as a result of changes announced in the May 2009 Budget, the annual cap is $25,000.

The concessional contributions cap will be indexed to upward movements of average weekly ordinary time earnings (AWOTE) in $5,000 increments (subsection 292-20(2) of the ITAA 1997).

Concessional contributions include employer contributions, salary sacrifice contributions and personal contributions claimed as a tax deduction by a self-employed person.

A person will be taxed on concessional contributions over the cap at a rate of 31.5% (section 292-15 of the ITAA 1997 and sections 4 and 5 of the Superannuation (Excess Concessional Contributions Tax) Act 2007).

If a person has more than one fund, all concessional contributions made to all their funds are added together and count towards the cap.

Amounts in excess of the concessional contributions cap are also counted towards the non-concessional contributions cap.

Section 292-25 of the ITAA 1997 determines what amounts are concessional contributions for a financial year. Under paragraph 292-25(2)(c) the following amounts are excluded from being concessional contributions:

(i) so much of an amount that is transferred to a superannuation fund from a foreign superannuation fund and is included in the assessable income of the fund as a result of a choice made under section 305-80;

(ii) an amount that is a roll-over superannuation benefit to the extent that it contains an untaxed element that is not an excess untaxed roll-over amount;

(iii) a contribution made to a constitutionally protected fund (CPF).

As noted earlier, the amount of the applicable fund earnings in relation to the transfer of benefits from a foreign superannuation fund to an Australian superannuation fund that is covered by an election under section 305-80 of the ITAA 1997 is treated as assessable income of the Australian superannuation fund. The amount covered by the election will not be treated as a concessional contribution to the Australian superannuation fund. Consequently, this amount will not count towards the concessional contributions cap for the relevant year.

Non-concessional contributions

From 1 July 2007, non-concessional contributions made to a complying superannuation fund will be subject to an annual cap (subsection 292-85(2) of the ITAA 1997). For the 2009-10 income year onwards the annual cap is always six times the concessional contributions cap. Therefore, for the 2009-10 income year the annual cap is $150,000.

According to section 292-90 of ITAA 1997, non-concessional contributions include:

personal contributions for which an income tax deduction is not claimed;

contributions a persons spouse makes to their superannuation fund account; and

transfers from foreign superannuation funds (excluding amounts included in the fund's assessable income).

However, some contributions are specifically excluded from being non-concessional contributions. These include:

- a Government co-contribution;

- a contribution arising from a structured settlement or an order for personal injury;

- a contribution relating to some capital gains tax (CGT) small business concessions to the extent that it does not exceed the CGT cap amount ($1,000,000 indexed annually) when it is made; and

- a roll-over superannuation benefit.

As noted above, the amount of the applicable fund earnings in relation to the transfer of benefits from a foreign superannuation fund to an Australian superannuation fund that is covered by an election under subsection 305-80(2) of the ITAA 1997 is treated as assessable income of the Australian superannuation fund. Therefore, this amount will not be treated as a non-concessional contribution to the Australian superannuation fund and will not count towards the taxpayer's non-concessional contributions cap for the relevant year.

The remainder of the superannuation benefit transferred from the foreign superannuation fund will be treated as a non-concessional contribution to the Australian superannuation fund and will count towards the taxpayer's non-concessional contributions cap for the relevant year. This will include the amount, if any, of the applicable fund earnings not covered by the election under subsection 305-80(2) of the ITAA 1997.

A person will be taxed on non-concessional contributions over the cap at the rate of 46.5% (section 292-80 of the ITAA 1997 and sections 4 and 5 of the Superannuation (Excess Non-concessional Contributions Tax) Act 2007). The person will be required to ask their superannuation fund to release an amount that is equal to the tax liability (section 292-410 of the ITAA 1997).

As a concession, to accommodate larger contributions, persons under age 65 in an income year are able to bring forward future entitlements to two years worth of non-concessional contributions. This means a person under age 65 will be able to contribute non-concessional contributions totalling $450,000 over three income years without exceeding their non-concessional contributions cap (subsections 292-85(3) and (4) of the ITAA 1997).

The bring forward will be triggered automatically when contributions in excess of the annual non-concessional contributions cap are made in an income year by a person who is under age 65 at any time in the year where a bring forward has not already commenced (subsection 292-85(3) of the ITAA 1997).

Where a bring forward has been triggered, the two future years' entitlements are not indexed.

Conclusions

In your case, the employer superannuation guarantee contributions made for you during the 2009-10 income year to a complying Australian superannuation fund are assessable income of the superannuation fund. Accordingly, they are classified as concessional contributions and will be counted against the concessional contribution cap of $25,000 for the 2009-10 income year.

Your personal superannuation contribution, representing 10% of your salary from the second position, is classified as a non-concessional contribution and will be counted against the non-concessional contribution cap of $150,000 for the 2009-10 income year.

With respect to the superannuation benefit transferred from the foreign superannuation fund to a complying Australian superannuation fund, its treatment will be dependent on whether or not the transfer took place within six months of you becoming an Australian resident for income tax purposes.

If the transfer took place within six months of you becoming an Australian resident for income tax purposes then the payment is not assessable income and is not exempt income (subsection 305-60 of the ITAA 1997). However, the transferred amount will be classified as a non-concessional contribution and will be counted against the non-concessional contribution cap of $150,000 for the 2009-10 income year.

If the transfer took place more than six months of you becoming an Australian resident for income tax purposes then the applicable fund earnings will be included in your assessable income for the 2009-10 income year. However, if you make an election under section 305-80 of the ITAA 1997, then the amount covered by the election is included in the assessable income of the Australian superannuation fund and not in your assessable income.

The amount (if any) covered by the election made under section 305-80 of the ITAA 1997 is not classified as either concessional or non-concessional contributions and therefore is not counted against either cap.

The transferred amount that is not assessable income of the Australian superannuation fund (that is, not covered by the election made under section 305-80 of the ITAA 1997) is classified as a non-concessional contribution and will be counted against the non-concessional contribution cap of $150,000 for the 2009-10 income year.

It should be noted that concessional contributions in excess of the concessional contribution cap are counted towards the non-concessional contributions cap.

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